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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
COMMISSION FILE NO: 0-17411
PARKVALE FINANCIAL CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1556590
- -------------------------- -----------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
4220 William Penn Highway, Monroeville, Pennsylvania 15146
-----------------------------------------------------------
(Address of principal executive offices; zip code)
Registrant's telephone number, including area code: (412) 373-7200
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
--- ---
The closing sales price of the Registrant's Common Stock on October 20, 2003 was
$26.50 per share.
Number of shares of Common Stock outstanding as of October 20, 2003 was
5,538,557.
PARKVALE FINANCIAL CORPORATION
INDEX
Part I. Financial Information Page
- --------------------------------- ----
Item 1.
- -------
Consolidated Statements of Financial Condition as of September 30, 2003
and June 30, 2003 3
Consolidated Statements of Operations for the three months ended
September 30, 2003 and 2002 4
Consolidated Statements of Cash Flows for the three months ended
September 30, 2003 and 2002 5-6
Consolidated Statements of Shareholders' Equity as of September 30, 2003 6
Notes to Unaudited Interim Consolidated Financial Statements 7-10
Item 2.
- -------
Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-16
Item 3.
- -------
Quantitative and Qualitative Disclosures about Market Risk 16
Item 4.
- -------
Controls and Procedures 16
Part II - Other Information 16
Signatures 18
2
Item 1.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands, except share data)
SEPTEMBER 30, June 30,
ASSETS 2003 2003
----------- -----------
(unaudited)
Cash and noninterest earning deposits $ 19,232 $ 32,067
Federal funds sold 79,000 72,000
Interest-earning deposits in other banks 14,020 17,576
Investment securities available for sale (cost of
$19,357 at September 30 and $19,185 at June 30) 19,464 19,743
Investment securities held to maturity (fair value
of $240,151 at September 30 and $215,587 at June 30) 235,740 210,827
Loans, net of allowance of $14,877 at September 30
and $15,013 at June 30 1,189,799 1,241,779
Foreclosed real estate, net 2,482 2,695
Office properties and equipment, net 10,964 11,196
Intangible assets and deferred charges 11,463 11,572
Prepaid expenses and other assets 23,156 23,348
----------- -----------
Total Assets $ 1,605,320 $ 1,642,803
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Savings deposits $ 1,297,492 $ 1,331,760
Advances from Federal Home Loan Bank 161,104 161,107
Trust preferred securities 25,000 25,000
Other debt 13,053 13,050
Escrow for taxes and insurance 3,272 7,144
Other liabilities 5,153 5,268
----------- -----------
Total Liabilities 1,505,074 1,543,329
----------- -----------
SHAREHOLDERS' EQUITY
Preferred Stock ($1.00 par value; 5,000,000
shares authorized; 0 shares issued) - -
Common Stock ($1.00 par value; 10,000,000 shares
authorized; 6,734,894 shares issued) 6,735 6,735
Additional Paid in Capital 4,091 4,132
Treasury Stock at cost (1,198,738 shares in September
and 1,186,663 in June) (23,284) (22,951)
Accumulated Other Comprehensive Income 68 355
Retained Earnings 112,636 111,203
----------- -----------
Total Shareholders' Equity 100,246 99,474
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,605,320 $ 1,642,803
=========== ===========
3
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
THREE MONTHS ENDED
SEPTEMBER 30,
2003 2002
------- -------
(unaudited)
Interest Income:
Loans $15,419 $19,745
Investments 2,548 2,942
Federal funds sold 262 507
------- -------
Total interest income 18,229 23,194
------- -------
Interest Expense:
Savings deposits 8,859 12,322
Borrowings 2,213 2,041
Trust preferred securities 295 345
------- -------
Total interest expense 11,367 14,708
------- -------
Net interest income 6,862 8,486
Provision for loan losses 47 48
------- -------
Net interest income after
provision for losses 6,815 8,438
------- -------
Noninterest Income:
Service charges on deposit accounts 1,046 1,065
Other fees and service charges 362 379
Gain on sale of investment securities 406 -
Miscellaneous 385 284
------- -------
Total other income 2,199 1,728
------- -------
Noninterest Expenses:
Compensation and employee benefits 3,045 3,267
Office occupancy 1,057 974
Marketing 87 151
Office supplies, telephone, and postage 387 410
Miscellaneous 973 994
------- -------
Total other expenses 5,549 5,796
------- -------
Income before income taxes 3,465 4,370
Income tax expense 1,035 1,508
------- -------
Net income $ 2,430 $ 2,862
======= =======
Net income per share:
Basic $ 0.44 $ 0.51
Diluted $ 0.43 $ 0.50
4
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
2003 2002
--------- ---------
(unaudited)
Cash flows from operating activities:
Interest received $ 21,045 $ 24,840
Loan fees received (premiums paid) (1,207) (223)
Other fees and commissions received 1,657 1,729
Interest paid (11,229) (14,654)
Cash paid to suppliers and others (5,770) (5,083)
Income taxes paid (1,070) -
--------- ---------
Net cash provided by operating activities 3,426 6,609
Cash flows from investing activities:
Proceeds from sale of investment securities available for sale 561 -
Proceeds from maturities of investments 27,251 38,185
Purchase of investment securities available for sale - (5,250)
Purchase of investment securities held to maturity (53,074) (67,171)
Maturity of deposits in other banks 3,557 914
Purchase of loans (129,029) (118,734)
Proceeds from sales of loans 886 897
Principal collected on loans 221,424 168,329
Loans made to customers, net of loans in process (41,107) (41,353)
Other (121) (161)
--------- ---------
Net cash used in investing activities 30,348 (24,344)
Cash flows from financing activities:
Net increase (decrease) in checking and savings accounts 4,967 (5,101)
Net (decrease) increase in certificates of deposit (39,235) 6,295
Proceeds from FHLB advances - 20,000
Repayment of FHLB advances (3) (5,003)
Net decrease in other borrowings 3 (1,704)
Decrease in borrowers' advances for tax & insurance (3,872) (4,143)
Cash dividends paid (997) (1,026)
Acquisition of treasury stock (472) (2,932)
--------- ---------
Net cash (used in) provided by financing activities (39,609) 6,386
--------- ---------
Net decrease in cash and cash equivalents (5,835) (11,349)
Cash and equivalents at beginning of period 104,067 144,050
--------- ---------
Cash and equivalents at end of period $ 98,232 $ 131,701
========= =========
5
Reconciliation of net income to net cash provided THREE MONTHS ENDED
by operating activities: SEPTEMBER 30,
2003 2002
------- -------
Net income $ 2,430 $ 2,862
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 462 427
Accretion and amortization of loan fees and discounts 1,763 751
Loan fees collected and deferred (1,207) (223)
Provision for loan losses 47 48
Gain on sale of assets (406) -
Decrease in accrued interest receivable 826 802
(Decrease) increase in other assets (636) 115
Decrease in accrued interest payable 139 55
Increase in other liabilities 8 1,772
------- -------
Total adjustments 996 3,747
------- -------
Net cash provided by operating activities $ 3,426 $ 6,609
======= =======
For purposes of reporting cash flows, cash and cash equivalents include cash and
noninterest earning deposits, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods. Loans transferred to foreclosed
assets aggregated $144,000 for the three months ended September 30, 2003 and
$189,000 for the three months ended September 30, 2002.
PARKVALE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
Accumulated
Additional Other Total
Common Paid-in Treasury Comprehensive Retained Shareholders'
Stock Capital Stock Income Earnings Equity
----------------------------------------------------------------------------------
Balance, June 30, 2003 $6,735 $4,132 ($22,951) $355 $111,203 $99,474
Net income, three months
ended September 30, 2003 2,430 2,430
Other Comprehensive income, net of tax
Unrealized Gains on securities of $3 (287) (287)
-------
net of reclassification adjustment for
gains included in net income of $284
Total comprehensive income 2,143
Treasury stock purchased (472) (472)
Dividends on common stock at
$0.18 per share (997) (997)
Exercise of stock options (41) 139 98
------ ------ --------- --- -------- --------
Balance, September 30, 2003 $6,735 $4,091 ($23,284) $68 $112,636 $100,246
====== ====== ========= === ======== ========
6
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share data)
Statements of Operations
- ------------------------
The statements of operations for the three months ended September 30, 2003 and
2002 are unaudited, but in the opinion of management, reflect all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the results of operations for those periods. The results of operations for
the three months ended September 30, 2003 are not necessarily indicative of the
results which may be expected for fiscal 2004. The Annual Report on Form 10-K
for the year ended June 30, 2003 contains additional information and should be
read in conjunction with this report.
Stock Based Compensation
- ------------------------
Pro forma information regarding net income and earnings per share as required by
FAS 123, has been determined as if Parkvale Financial Corporation had accounted
for its stock options using that method. The fair value for these options was
estimated at the date of the grants using a Black-Scholes option pricing model.
In management's opinion, existing stock option valuation models do not provide a
reliable single measure of the fair value of employee stock options that have
vesting provisions and are not transferable. In addition, option valuation
models require input of highly subjective assumptions including the expected
stock price volatility. Because PFC's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. Parkvale's pro forma
information is as follows:
For the three months ended September 30,
2003 2002
------ ------
Net income before stock options $2,430 $2,862
Compensation expense from stock options, net of tax:
Three months ended September 30 51 35
------ ------
Pro forma net income $2,379 $2,827
====== ======
Pro forma income per share:
Basic $ 0.43 $ 0.50
Diluted $ 0.42 $ 0.49
Comprehensive Income
- --------------------
Sources of comprehensive income not included in net income are limited to
unrealized gains and losses on certain investments in equity securities. For the
three months ended September 30, 2003 and 2002, total comprehensive income
amounted to $2,143 and $2,790, respectively.
7
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share data)
Earnings Per Share
- ------------------
The following table sets forth the computation of basic and diluted earnings per
share for the three and nine months ended September 30:
2003 2002
---------- ----------
Numerator for basic and diluted earnings per share:
Net Income $ 2,430 $ 2,862
Denominator:
Weighted average shares for basic earnings per share 5,537,810 5,639,270
Effect of dilutive stock options 89,344 93,786
---------- ----------
Weighted average shares for dilutive earnings per share 5,627,154 5,733,056
========== ==========
Net income per share:
Basic $ 0.44 $ 0.51
Diluted $ 0.43 $ 0.50
Dividends per share $ 0.18 $ 0.18
Loans
- -----
Loans are summarized as follows: SEPTEMBER 30, June 30,
2003 2003
----------- -----------
Mortgage loans:
Residential:
1-4 Family $ 883,829 $ 932,535
Multifamily 18,434 19,477
Commercial 65,300 59,796
Other 35,320 36,581
----------- -----------
1,002,883 1,048,389
Consumer loans 150,662 152,458
Commercial business loans 43,471 47,983
Loans on savings accounts 2,911 2,974
----------- -----------
1,199,927 1,251,804
Less: Loans in process 236 117
Allowance for loan losses 14,877 15,013
Unamortized discount (premiums) and deferred loan fees (4,985) (5,105)
----------- -----------
Loans, net $ 1,189,799 $ 1,241,779
=========== ===========
The following summarizes the activity in the allowance for loan losses for the
three months ended September 30:
2003 2002
-------- --------
Beginning balance $ 15,013 $ 15,492
Provision for losses 47 48
Loans recovered 5 62
Loans charged off (189) (122)
-------- --------
Ending balance $ 14,876 $ 15,480
======== ========
8
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
New Accounting Pronouncements
- -----------------------------
Statement of Financial Standards No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, which amends Statement of Financial
Standard No. 123 to provide alternative method's of transition to Statement No.
123's fair value method of accounting for stock-based compensation. Statement
No. 148 also amends the disclosure provisions of Statement 123 and APB Opinion
No. 28, Interim Financial Reporting, to require disclosure in the summary of
significant accounting policies of the effects of an entity's accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. Parkvale has
complied with the disclosure required under this statement within the Notes of
this Form 10Q.
Statement of Financial Standards No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities
addressed under FAS 133, Accounting for Derivative Instruments and Hedging
Activities. This accounting guidance amends FAS 133 for decisions made by the
FASB as part of the Derivatives Implementations Group process and also amends
FAS 133 to clarify the definition of a derivative. FAS 149 is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. Management has evaluated the
impact of this statement and has determined that there is no material effect on
Parkvale's financial position or results of operations.
Statement of Financial Standards No. 150, Accounting for Certain Financial
Instruments with characteristics of both Liabilities and Equity, which
establishes standards for how an issuer is to classify and measure certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify certain financial instruments that would
previously have been classified as equity as liabilities (or as assets in some
circumstances). Specifically, FAS 150 requires that financial instruments issued
in the form of shares that are mandatorily redeemable; financial instruments
that embody an obligation to repurchase the issuer's equity shares or are
indexed to such an obligation; or financial instruments that embody an
unconditional obligation or a conditional obligation that can be settled in
certain ways be classified as liabilities. This statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective July 1, 2003. Management has evaluated the impact of this statement
and has determined that there is no material effect on Parkvale's financial
position or results of operation.
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements of
Guarantees, Including Indirect Guarantees of Indebtness of Others, which expands
on the accounting guidance of FAS 5, 57 and 107 and incorporates without change
the provisions of FAS Interpretation 34, which is being superseded. Each
guarantee meeting the characteristics described in FIN 45 is to be recognized
and initially measured at fair value, which will be a change from current
practice for most entities. In addition, guarantors will be required to make
significant new disclosures, even if the likelihood of the guarantor making
payments under the guarantee is remote, which represents another change from
current general practice. FIN 45 disclosure requirements were effective in
December 2002. Management has evaluated the impact of this interpretation and
has determined that there is no material effect on Parkvale's financial position
or results of operation.
9
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interpretation No. 46, Consolidation of Variable Interest Entities ("VIE's"), an
interpretation of Accounting Research bulletin No. 51, Consolidated Financial
Statements, to improve financial reporting of special purpose and other
entities. In accordance with FIN 46, business enterprises that represent the
primary beneficiary of another entity by retaining a controlling financial
interest in that entity's assets, liabilities and results of operating
activities must consolidate the entity in its financial statements. Prior to the
issuance of FIN 46, consolidation generally occurred when an entity controlled
another entity through voting interests. Certain VIEs that are qualifying
special purpose entities subject to the reporting requirements for FAS 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities will not be required to be consolidated under the provisions of FIN
46. The consolidation provisions of FIN 46 apply to VIEs entered into after
January 31, 2003, and for preexisting VIEs on July 1, 2003. Management has
evaluated the impact of this interpretation and has determined that there is no
material effect on Parkvale's financial position or results of operation at
September 30, 2003.
10
Item 2.
PARKVALE FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
Balance Sheet Data: SEPTEMBER 30,
2003 2002
---------- ----------
Total assets $1,605,320 $1,641,753
Loans, net 1,189,799 1,207,972
Interest-earning deposits and federal funds sold 93,020 113,559
Total investments 255,204 247,002
Savings deposits 1,297,492 1,350,534
FHLB advances 161,104 146,117
Other borrowings 13,053 15,172
Shareholders' equity 100,246 96,260
Book value per share $ 18.11 $ 17.24
Statistical Profile:
THREE MONTHS ENDED
SEPTEMBER 30, (1)
2003 2002
---------- ----------
Average yield earned on all
interest-earning assets 4.70% 5.93%
Average rate paid on all
interest-bearing liabilities 3.00% 3.78%
Average interest rate spread 1.70% 2.15%
Net yield on average
interest-earning assets 1.77% 2.17%
Other expenses to average assets 1.37% 1.43%
Taxes to pre-tax income 29.87% 34.51%
Return on average assets 0.60% 0.70%
Return on average equity 9.72% 11.90%
Average equity to average total assets 6.16% 5.92%
AT SEPTEMBER 30,
2003 2002
---------- ----------
One year gap to total assets 7.35% -5.02%
Intangibles to total equity 6.24% 12.13%
Ratio of nonperforming assets to total assets 0.48% 0.34%
Number of full-service offices 39 38
(1) The applicable income and expense figures have been annualized in
calculating the percentages.
11
NONPERFORMING LOANS AND FORECLOSED REAL ESTATE:
Nonperforming and impaired loans and foreclosed real estate (REO) consisted of
the following at September 30, 2003 versus year-end June 30, 2003.
SEPTEMBER 30, 2003 June 30, 2003
------------------ -------------
(Dollars in 000's)
Delinquent single-family mortgage loans $3,254 $3,786
Delinquent other loans 710 2,379
------ ------
Total of nonperforming loans $3,964 $6,165
Total of impaired loans 1,261 1,119
Real estate owned, net 2,482 2,695
------ ------
Total $7,707 $9,979
====== ======
Nonperforming and impaired loans and real estate owned represent 0.48% and 0.34%
of total assets at the respective balance sheet dates. Delinquent single-family
mortgage loans at September 30, 2003 consisted of 34 single family owner
occupied homes. As of September 30, 2003, $1.9 million or 59.6% of the
nonaccrual mortgage loans totaling $3.3 million were purchased from others. The
$1.9 million of the delinquent loans purchased by others are comprised of 9
loans which management believes are well collateralized.
Loans are placed on nonaccrual status when, in management's judgment, the
probability of collection of principle and interest is deemed to be insufficient
to warrant further accrual. When a loan is placed on nonaccrual status,
previously accrued but unpaid interest is deducted from interest income. As a
result, uncollected interest income is not included in earnings for nonaccrual
loans. The amount of interest income on nonaccrual loans that had not been
recognized in interest income was $241,000 at September 30, 2003 and $248,000 at
June 30, 2003. Parkvale provides an allowance for the loss of accrued but
uncollected interest on mortgage, consumer and commercial business loans which
are more than 90 days contractually past due.
Nonaccrual, substandard and doubtful commercial and other real estate loans are
assessed for impairment. Loans are considered impaired when the fair value is
insufficient as compared to the contractual amount due. Parkvale excludes
single-family loans, credit card and installment consumer loans in the
determination of impaired loans consistent with the exception under paragraph 6
of SFAS 114 of loans measured for impairment. Parkvale Bank had $1.3 million of
loans classified as impaired at September 30, 2003 and $1.1 million at June 30,
2003. The average recorded investment in impaired loans is $1.3 million for the
September 2003 quarter. The amount of interest income that has not been
recognized was $66,000 at September 30, 2003. Impaired assets include $2.5
million of foreclosed real estate as of September 30, 2003. Foreclosed real
estate properties are recorded at the lower of the carrying amount or fair value
of the property less the cost to sell. The net book value of foreclosed real
estate at September 30, 2003 includes $1.6 million related to a vacant office
building, which is undergoing renovation and rehabilitation.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses was $14.9 million at September 30, 2003, $15.0
million at June 30, 2003 and $15.5 million at September 30, 2002 or 1.24%, 1.20%
and 1.27% of gross loans at September 30, 2003, June 30, 2003 and September 30,
2002. The adequacy of the allowance for loan loss is determined
12
by management through evaluation of the loss potential on individual
nonperforming, delinquent and high dollar loans, economic and business trends,
growth and composition of the loan portfolio and historical loss experience, as
well as other relevant factors.
The allowance for loan losses is continually monitored by management to identify
potential portfolio risks and detect potential credit deterioration in the early
stages. Management then establishes reserves based upon its evaluation of the
inherent risks in the loan portfolio. Changes to the levels of reserves are made
quarterly based upon perceived changes in risk. Management believes the
allowance for loan losses is adequate to absorb loan losses incurred.
LIQUIDITY AND CAPITAL RESOURCES:
Federal funds sold increased $7.0 million or 9.7% from June 30, 2003 to
September 30, 2003. Investment securities held to maturity increased $24.9
million or 11.8% and loans decreased $52.0 million or 4.2% from June 30, 2003 to
September 30, 2003. Deposits decreased $34.3 million or 2.6% from June 30, 2003
to September 30, 2003. Escrow for taxes and insurance decreased by $3.9 million
or 54.2% as a result of the remittance of property taxes to the various taxing
districts during the quarter. Parkvale Bank's FHLB advance available maximum
borrowing capacity is $874.2 million. If Parkvale were to experience a deposit
decrease in excess of the available cash resources and cash equivalents,
available FHLB borrowing capacity could be utilized to fund a rapid decrease in
deposits.
Shareholders' equity was $100.2 million or 6.2% of total assets at September 30,
2003. A stock repurchase program approved in June 2003 permits the purchase of
5% of outstanding stock or 276,500 shares during fiscal 2004 at prevailing
prices in open-market transactions. Through September 30, 2003, 20,000 shares
were purchased at an average price of $23.61 per share, representing 7.23% of
the authorized program. The Bank is required to maintain Tier I (Core) capital
equal to at least 4% of the institution's adjusted total assets, and Tier II
(Supplementary) risk-based capital equal to at least 8% of the risk-weighted
assets. At September 30, 2003, Parkvale was in compliance with all applicable
regulatory requirements, with Tier I and Tier II ratios of 7.08% and 12.56%,
respectively.
The regulatory capital ratios for Parkvale Bank at September 30, 2003 are
calculated as follows:
Tier I Tier I Tier II
Core Risk-Based Risk-Based
Capital Capital Capital
----------- ----------- -----------
Equity Capital (1) $ 125,085 $ 125,085 $ 125,085
Less non-allowable intangible assets (11,463) (11,463) (11,463)
Less unrealized securities gains (59) (59) (59)
Plus permitted valuation allowances (2) - - 12,571
Plus allowable unrealized holding gains (3) - - 42
----------- ----------- -----------
Total regulatory capital 113,563 113,563 126,178
Minimum required capital 64,176 41,171 80,341
----------- ----------- -----------
Excess regulatory capital $ 49,387 $ 73,392 $ 45,837
Adjusted total assets $ 1,604,389 $ 1,004,263 $ 1,004,263
=========== =========== ===========
Regulatory capital as a percentage 7.08% 11.31% 12.56%
Minimum capital required as a percentage 4.00% 4.00% 8.00%
----------- ----------- -----------
Excess regulatory capital as a percentage 3.08% 7.31% 4.56%
=========== =========== ===========
Well capitalized requirement 5.00% 6.00% 10.00%
=========== =========== ===========
13
- ----------
(1) Represents equity capital of the consolidated Bank as reported to the
Pennsylvania Department of Banking and FDIC on Form 041 for the quarter
ended September 30, 2003.
(2) Limited to 1.25% of risk adjusted total assets.
(3) Limited to 45% of pretax net unrealized holding gains.
Management is not aware of any trends, events, uncertainties or current
recommendations by any regulatory authority that will have (if implemented), or
that are reasonably likely to have, material effects on Parkvale's liquidity,
capital resources or operations.
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2003 AND
2002
For the three months ended September 30, 2003, Parkvale reported net income of
$2.4 million or $0.43 per diluted share, compared to net income of $2.9 million
or $0.50 per diluted share for the quarter ended September 30, 2002. The
$432,000 decrease in net income for the September 2003 quarter is attributable
to margin pressures partially offset by a gain on sale of investment securities
and a decrease in non-interest expense. Net interest income decreased to $6.9
million from $8.5 million for the prior period. The reduction in net interest
income is attributable to a continuing trend of loan payoffs as consumers
refinance debt at lower interest rates. The September 2003 quarter reflects a
gain on the sale of investment securities of $406,000 (pre-tax). Return on
average equity was 9.72% for the September 2003 quarter compared to 11.90% for
the September 2002 quarter.
INTEREST INCOME:
Parkvale had interest income of $18.2 million during the three months ended
September 30, 2003 versus $23.2 million during the comparable period in 2002.
The $5.0 million decrease is the result of a 123 basis point decrease in the
average yield from 5.93% in 2002 to 4.70% in 2003 coupled with a $12,000 or 0.1%
decrease in the average balance of interest-earning assets. Interest income from
loans decreased $4.3 million or 21.9% resulting from a 144 basis point decrease
in the average yield from 6.49% in 2002 to 5.05% in 2003 offset by an increase
in the average outstanding loan balances of $4.0 million or 0.3%. The decrease
in the average yield reflects the adverse impact of loan repayments of $797
million in fiscal 2003 plus the additional $196 million in payments during the
September 2003 quarter. New loans granted and purchased during the past 15
months have been at substantially lower rates reflective of lower market rates.
Investment interest income decreased by $394,000 or 13.4% due to a decrease of
$3.2 million or 1.4% in the average balance and by a 61 basis point decrease in
the average yield from 5.05% in 2002 to 4.44% in 2003. Interest income earned on
federal funds sold decreased $245,000 or 48.3% from the 2002 quarter due to a 74
basis point decrease in the average yield from 1.78% in 2002 to 1.03% in 2003.
This decrease was coupled by a decrease in the average balance of $12.8 million
or 11.2%. The weighted average yield on all interest earning assets was 4.70% at
September 30, 2003 and 5.93% at September 30, 2002.
INTEREST EXPENSE:
Interest expense decreased $3.3 million or 22.7% from the 2003 to the 2002
quarter. The decrease was due to an 87 basis point decrease in the average rate
paid on deposits and borrowings from 3.87% in 2002
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to 3.00% in 2003 and by a decrease in the average deposits and borrowings of
$5.5 million. The rates paid in the September 2003 quarter reflects a 20 basis
point decrease from the 3.20% paid in the June 2003 quarter. At September 30,
2003, the average rate payable on liabilities was 2.51% for deposits, 4.97% for
borrowings, 4.74% for trust preferred securities and 2.84% for combined deposits
and borrowings.
PROVISION FOR LOAN LOSSES:
The provision for loan losses is an amount added to the allowance against which
loan losses are charged. Parkvale's provision for loan losses decreased by
$1,000 from the 2002 to the 2003 quarter. Aggregate valuation allowances were
1.24% and 1.20% of gross loans at September 30, 2003 and June 30, 2003,
respectively.
Nonperforming loans and real estate owned were $7.7 million, $10.0 million and
$5.6 million at September 30, 2003, June 30, 2003 and September 30, 2002,
representing 0.48%, 0.61% and 0.34% of total assets at the respective balance
sheet dates. Total loan loss reserves at September 30, 2003 were $14.9 million.
Management considers loan loss reserves sufficient when compared to the value of
underlying collateral. Collateral is considered and evaluated when establishing
provision for loan losses and the sufficiency of the allowance for loan losses.
Management believes the allowance for loan losses is adequate to cover the
amount of probable loan losses incurred.
OTHER INCOME:
Total other income increased by $471,000 or 27.3% in 2003 due mainly due to a
gain on sale of assets of $406,000. Other income absent this gain increased
$65,000 or 3.8% due to income earned on Bank Owned Life Insurance.
OTHER EXPENSE:
Total other expense decreased by $247,000 or 4.3% for the three months ended
September 30, 2003. This decrease is due principally to decreases in
compensation and marketing of $222,000 and $64,000, or 6.8% and 42.4%,
respectively. Compensation has decreased over the prior year due mainly to a
decrease in full-time equivalents due to consolidation of processing functions
and reduced profitability. Marketing has decreased as compared to the prior
quarter due to a decrease in approved marketing expenditures. Annualized
noninterest expense as a percentage of average assets were 1.37% for the quarter
ended September 30, 2003 as compared to 1.43% for the quarter ended September
30, 2002.
IMPACT OF INFLATION AND CHANGING PRICES:
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, substantially all
of the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services as measured by the consumer price
index.
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FORWARD LOOKING STATEMENTS:
The statements in this Form 10-Q which are not historical fact are forward
looking statements. Forward looking information should not be construed as
guarantees of future performance. Actual results may differ from expectations
contained in such forward looking information as a result of factors including
but not limited to the interest rate environment, economic policy or conditions,
federal and state banking and tax regulations and competitive factors in the
marketplace. Each of these factors could affect estimates, assumptions,
uncertainties and risks considered in the development of forward looking
information and could cause actual results to differ materially from
management's expectations regarding future performance.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are presented
at June 30, 2003 in item 7a of Parkvale Financial Corporation's Form
10-K/A, filed with the SEC on September 26, 2003. Management believes
that there have been no material changes in Parkvale's market risk since
June 30, 2003.
Item 4. Controls and Procedures
Disclosure controls and procedures are monitored and supervised by the
Registrant's management, including the CEO and CFO, to the effectiveness
of the design and operation of the Registrant's disclosure controls and
procedures. The Registrant's management, including the CEO and CFO,
concluded that the Registrant's disclosure controls and procedures were
effective as of September 30, 2003. There have been no significant
changes in Registrant's internal controls or in other factors that could
significantly affect internal controls subsequent to September 30, 2003.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2003 Annual Meeting of Shareholders of Parkvale Financial Corporation
was held on October 23, 2003. Of 5,528,856 shares eligible to vote, 90.2%
or 4,984,604 were voted by proxy.
(b) The shareholders voted to elect the nominee for director, as described in
the Proxy Statement for the Annual Meeting. The results for the
election of Harry D. Reagan as director were 4,751,773 shares in favor
and 232,831 shares withheld. The results for the re-election of Robert D.
Pfischner as director were 4,732,688 shares in favor and 251,916 shares
withheld. The results for the re-election of Andrea F. Fitting, PH.D. as
director were 4,933,644 shares in favor and 50,960 shares withheld.
(c) The recommendation by the Board of Directors to ratify the appointment of
Ernst & Young LLP as the Corporation's independent auditors, as described
in the Proxy Statement for the Annual Meeting, was approved with
4,897,566 shares in favor, 78,897 shares against and 8,141 shares
abstaining.
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Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (as furnished as Exhibit 31.1)
31.2 Certification of Chief Financial Officer pursuant to rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (as furnished as Exhibit 31.2)
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (as furnished as Exhibit 32.1)
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (as furnished as Exhibit 32.2)
(b) Reports on Form 8-K
A Form 8-K was filed October 20, 2003 for an earnings release
dated October 16, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Parkvale Financial Corporation
DATE: October 27, 2003 By: /s/ Robert J. McCarthy, Jr.
-------------------- ----------------------------
Robert J. McCarthy, Jr.
President and
Chief Executive Officer
DATE: October 27, 2003 By: /s/ Timothy G. Rubritz
---------------- -----------------------------
Timothy G. Rubritz
Vice President, Treasurer and
Chief Financial Officer
18